Understanding The Advantages Apartment Building Financing

And How To Make Sure You Get The Best Apartment Loan To Suit Your Deal

Securing apartment building financing is often easier than securing financing on smaller deals. Why? Well, once you get into the realm of commercial real estate, lenders tend to look at the deal first, and the individual second.

And this is one of the biggest advantages of either making the switch from single family homes to apartment complexes or simply jumping straight into multi units. I know this from personal experience.

When I first started out in the real estate investment business 14 years ago, I did what I presume most people do. I focused on single family homes. Because my wife was supporting us financially while I got my business off the ground, it was difficult for me to secure financing. My solution? Take the focus off off me and put it on the property.

I found a mixed use commercial property that, even when highly leveraged, I knew would generate massive positive cash flow. The lenders of course focused their attention on the building and whether it could support the debt payments. It was win-win. They felt comfortable making the loan based on the building's financials, and I ended up with a handsome monthly cash flow from that one commercial real estate property.

Aside: An alternative to using conventional mortgage financing is to take advantage of "business credit" which can often be obtained without personal credit checks and/or personal guarantees. You can learn more about this option here.

But that's not quite the end of the story.

Depending on the particulars of your deal, the type of apartment building financing that you will require can vary. Having a clear understanding of your "business plan" for the property, (which must of course include several exit strategies) will help you put the proper apartment loan in place.

For example. On the deal I referred to above, I knew that my plan was to "rehab" the property, thus increasing the value substantially, and then refinance the property within the first 12 to 18 months of ownership. If this is the plan, then of course you do not want to put in place apartment building financing that has a prepayment penalty within this time frame. You may be better off to pay a slightly higher interest rate for the year and a half until you refinance in order to avoid a hefty loan prepayment penalty.

Not sure how to get started? Well, the first thing you need to is get yourself educated on the ins and outs of commercial real estate investing. And on that note, here is a good course that teaches how to find and fund profitable commercial real estate investments.

For a more thorough discussion of apartment building financing I have prepared a series of articles that will give you a much more comprehensive overview of the topic here.

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